Category Archives: Lean

Successful Strategy Execution is More Than Lean or Six Sigma

As per Sourcing Innovation‘s last strategy execution post, which outlined the secrets to successful strategy execution, successful strategy execution requires clear-cut decision rights and information flows, as per Neilson et al., and good business process mapping. Lean is not enough. Six Sigma is not enough. TPS / Operational Excellence is not enough.

While these are very useful methodologies — as they can be used to streamline processes and operations once the organization has mapped out its current processes, identified the gaps, and developed revised processes that it believes will get it to where it needs to be; they are not vehicles for strategy execution in themselves. The very definition of lean is to eliminate waste from a process. That means an existing process is required as a starting point — lean can’t be used to develop a process from scratch. Six Sigma is a management strategy designed to improve the quality of process outputs by identifying and removing the causes of defects and minimizing variability. That means that, by definition, it also requires an existing (or proposed) process as a starting point. The Toyota Production System, the precursor to lean — which a few companies have rebranded “Operational Excellence” in light of the recent Toyota scandal, was a system developed to design out overburden (muri) and inconsistency (mura) and eliminate waste (muda). Again, the assumption is that there is a starting process.

Business Process Mapping is very straight forward, and there are a lot of free resources to be found if one searches for “business process mapping” or “business process modelling“. In addition there are a number of tools — such as flow charts, flow block diagrams, control flow diagrams, Gantt Charts, PERT diagrams; modelling techniques — such as functional modelling, data modelling and information modelling, and simulation modelling; and platforms — including workflow and BPM that can be used to assist the team. And it doesn’t matter which one the team selects — as long as everyone on the team understands it. The whole point of the exercise is to develop a representation of what the business is, and where the organization wants to go, that can be easily understood by everyone on the team and form the foundation of an action plan to get there. If the organization consists of mostly mathematical geeks, it can use directed acyclic tesseracts. It really doesn’t matter.

Strategy execution comes down to four essential elements:

  1. Have a clearly defined strategy.

    If it isn’t immediately obvious to an average high school student, it’s not clear enough

  2. Have an action plan to get from the current state to the desired state.

    Goals are not enough.

  3. Have the tools and resources in place to implement the plan.

    Make sure there is a process (such as lean, six sigma), process support (in the form of new systems and tools), and people ready to go (who must be given access to the support resources they need and trained in advance).

  4. Have the decision rights, information flows, and organizational chart clearly defined.

    Everyone must know what decisions are theirs, who they get data from and who they provide information to, and who they go to for guidance if a request requires a decision they do not own.

That’s it in a nutshell. It is within the grasp of every organization.

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Even Good Times Call For Lean Supply Chain Strategies

A recent article over on the Harvard Business Review blogs told us that we should stand by for the same old strategy mistakes, because you see the same ones over and over again every time a downturn starts to trend up again. Moreover, similar fundamental strategy mistakes are often made by supply chain organizations when the economy starts to improve. As a result, there are lessons to be learned. Three easy ones are:

  • Too many supply chains.

    Many companies think they should have multiple supply chains — one for commodity electronics, one for custom parts, one for chemicals, etc. — as this will allow for a razor-sharp focus on streamlining operations around a category. The reality is that you should have only one supply chain (from a planning and management perspective), because every (distinct) supply chain costs money to manage and operate. Just like a business loses when it splits its focus (as 20% of operations will end up accounting for 80% of profit), a supply chain loses when it splits its operations.

  • Throttling back on cost reduction.

    When times improve and profits start to increase, supply chain often starts to think it can ease up on the push for ever lower prices, give suppliers a break, focus on quality, and / or focus on collaborative initiatives that will take cost out in the future. While it is important to focus on (these) other initiatives, you can never cease your cost reduction quest.

  • Pushing too hard for supplier consolidation.

    While it is true that most companies have too many suppliers in the supplier master, with 20% of active suppliers accounting for 80% of spend, and while it is true that a smaller supply base can enable greater spend leverage, too much consolidation too fast can greatly disrupt your supply chain.

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B2B Connex: e-Document Management for Small & Mid-Size Manufacturers

B2B Connex provides a web-based sourcing and procurement document management solution that is a great fit for all types of small and mid-size manufacturing organizations that need simple e-Sourcing and e-Procurement functionality at a low price tag. It’s basic portal solution, that plugs in to your existing ERP & MRP solution, can be acquired for as little as $30,000 (plus 20% annual maintenance) for a small operation. Mid-size operations are generally priced by the number of locations and users, but even their larger customers don’t pay much more than 100K. (Pure SaaS configurations and pricing are also available, but most of customers with traditional on-site ERPs/MRPs generally prefer on-site installations.)

Designed to fill the niche in the small and smaller mid-sized business market left by the big end-to-end e-Sourcing and e-Procurement suite vendors whose solutions often come with a big price tag, the B2B Connex solution allows you to easily manage the following e-Document types (among others) and efficiently conduct your day-to-day procurement operations.

  • RFQs
  • Purchase Orders
  • Kanban Orders
  • Shipment Notices
  • Payment Inquiries
  • Invoices

In addition, it can also handle the CRM side of your business and allow you to manage the following e-Document types (among others):

  • Inbound RFQs
  • Sales Orders
  • Inbound Shipment Inquiries

It’s implemented as a simple web-based portal solution, that can be accessed as needed by your procurement personnel, and it integrates with your back-end ERP and/or MRP systems. (Right now, they support about a dozen ERP/MRP systems with no or minimal configuration work, including SAP, Oracle, JDE, Intuit, Avantis, and Mapics.) And since it handles all the key document types, it allows you to do m-way matching and insure that the invoices are accurate (and represent actual shipments and agreed upon pricing) before you pay them. Since the lack of this capability is one of the two biggest reasons that up to 60% of negotiated savings never materialize (with the other being maverick spending), it’s a good one to have!

In addition to document status (such as new, acknowledged, reviewed, accepted, etc.), the system also supports state management, and a supplier can, for example, accept, reject, or mark each line item for negotiation on a purchase order. This is a useful feature for spot buying, which is common for MRO, SG&A, and low dollar spending in smaller organizations. Also, each e-Document can have an unlimited number of e-Document attachments, so your RFQs can contain detailed item descriptions and sample contracts and your purchase orders can contain detailed specifications and shipment terms and conditions, etc.

If you’re a small or smaller mid-size manufacturer still on EDI and holding off on an e-Procurement system because you think it’s too extensive for your needs, or you think it won’t integrate with your ERP/MRP, or you think you’re too small for such a solution, it’s certainly a system you should check out. Plus, they have an ROI guarantee. If the system does not pay for itself in a year, they’ll refund the purchase price. However, considering the implementation of even a basic e-Procurement e-Document management system such as this generally comes with at least a 25% productivity improvement across your Procurement department, it’s pretty hard not to see savings (especially since the automatic matching will reduce payment errors and the built-in e-Negotiation capabilities on spot buys will help you get price reductions).

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Take Lean to the Next Level with Tech

I enjoyed this recent article in Industry week that noted technology can help manufacturers take lean to the next level because technology is a critical component of lean planning in modern operations. While it might be appropriate to start with the “technology agnostic” philosophy that so many experts cherish, you can only get so far on generic process improvement alone.

For example, if a company is introducing a new product, the early-warning portal can be integrated with enterprise resource planning systems and other shop-floor applications and measurements to provide detailed information about additional materials that may be required at assembly line supply point. This allows plant personnel to view color-coded kanban alerts that show where a demand or engineering change may impact supply cycles and get lean right the first time.

Pure lean principles need to be looked at in tandem with industry-leading best practices in supply chain, such as intelligent inventory management, response management and demand management, in order to create the ideal lean plant. Furthermore, the approach of avoiding software is no longer realistic in today’s environment due to the simple fact that there are too many constraints, which cannot be handled manually with ad hoc tools.

So use technology earlier in the process. You might just find that results materialize faster than you expected.

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Is ISO 14000 Worth It?

ISO 14000 is the international standard for Environmental Management Systems (EMS). The environmentally responsible companion to the ISO 9000 standards for Quality Management Systems, it’s starting to get the attention of a few forward-thinking companies. But is it worth it? In other words, will it pay off, or should you just go lean?

In looking for the answer, I stumbled upon a recent Practix from CAPS Research on ISO 14000 at Veris Industries. The Practix provides a fairly detailed case study of the implementation and concludes with the following results:

  • The ISO 14000 process created a safer internal environment.
  • The identified recycling and re-use initiatives increased the recovery rate from 50% to 85% which reduced the cost of garbage hauling by 66%.
  • No price reductions resulted but Veritas believes it was a factor in keeping costs down over the last five years.
  • Natural Gas & Electricity consumption per manufacturing unit has declined.
  • On-time delivery has risen from mid-to-high 80’s to low-to-mid 90’s.

Not bad, but not great either. In other words, you can easily get the same results from a good lean initiative that focuses on waste reduction. I guess at this point, it comes down to whether or not you want something to hang on the flagpole. (And even if you do, I’d do the lean initiative first, because then it’s just a matter of documenting the processes, getting the audit, and paying for the certification.)

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